Shuttered Hedge Fund Arrowgrass Writes Down Fun Fair Bets by 70%

(Bloomberg) -- Arrowgrass Capital Partners slashed the valuation of its stake in Britain’s oldest surviving amusement park, piling further losses on investors in Nick Niell’s shuttered hedge fund.

Arrowgrass has written down its stake in the Dreamland park owner in the seaside town of Margate to 19.7 million euros ($21.6 million) over the last month, about 70% below its previous valuation, according to a person with knowledge of the matter. The decision resulted from a third-party valuation of Dreamland, a revised business forecast for the property and the closure of Arrowgrass, said the person, who asked not to be identified because the information is private.

A spokesman for London-based Arrowgrass declined to comment.

The investment accounts for a small portion of Arrowgrass’s $3.2 billion in assets, but the firm’s dealings in Margate, about 75 miles from London, have raised eyebrows in the industry. Niell was buying properties worth millions of pounds around the resort as the hedge fund was pouring clients’ money into an effort to revitalize the amusement park.

Illiquid Assets

Arrowgrass’s clients are the latest to suffer from illiquid assets in Europe where money managers from Neil Woodford to H2O Asset Management have come under fire from politicians, regulators and investors. Investment firms have ventured out into harder-to-sell assets such as real estate in a search for yield. Returns on safe assets have plummeted since the financial crisis and stayed low amid quantitative easing.

Arrowgrass’s investments in hard-to-sell assets were raising concerns among investors months before it decided to shut its doors after about $1 billion of redemption requests and a 50% drop in assets since 2017. The hedge fund blamed central bank policies for its demise.

At one point earlier this year, the firm’s exposure to so-called Level 3, or hard-to-value, assets was just under 10%, the person said. The Margate investment attracted particular attention. It was one of the firm’s most difficult-to-sell assets, yet Arrowgrass had plans to raise external capital and build hotels in Margate, the person said.

Arrowgrass’s investment in the park operator, Sands Heritage Ltd., started in 2016 as a distressed bet. The hedge fund ended up becoming the sole shareholder of Sands Heritage.

The firm is now expected to return about 75% of clients’ cash by the end of this year, according to a letter to investors sent by the firm last month. The rest of the investments will take longer to liquidate.

Arrowgrass’s main hedge fund lost about 3% in August, worsening decline this year to more than 6%, the person said. Arrowgrass had never posted a full-year loss since starting in 11 years ago.

To contact the reporter on this story: Nishant Kumar in London at nkumar173@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Patrick Henry

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